How to buy a house

[arcola]

Hi all

There is a property near my house - in Southern California a Mile or two from the beach - that I know is a good investment property.

It's about $800k for 9,000 sqft lot..

How do I get enough money to actually get a down payment down on this house? Anyone have advice? I have 10k in savings, am 24 and have never bought or financed anything like this before. Even my car I bought I cash.

As of recently I make about 4-6k a month in sales sometimes more.

I'm starting from ground zero - anyone have advice?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Mikkel]

That is quite the house that you plan on buying with such little money you make in comparison. I assume you plan on renting this out?

If so, whatever rate you get on the mortgage, you should plan on being able to pay for it for months on end in case you don't get someone to move in right away.


That is my two cents though; I won't pretend to know a shred on buying houses as I have never done so myself. Only read a few things here and there.

Maybe read some of @JScott threads, i'm sure some of his stuff will help you out. Better yet, maybe he'll come in with some advice?

 

[TonyStark]

What color Lamborghini would you like?

 

[arcola]

Yes I plan on renting it out
It is a 9,000 sqft lot with steer down 752 sqft property

It's an R2 zoning so I can build up to 3 detached units...

It's in Basically in Newport Beach for those familiar with the area

If I can figure out the money part it can be a really great investment because the rental income should easily pay for the mortgage...

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[biophase]

Yes I plan on renting it out
It is a 9,000 sqft lot with steer down 752 sqft property

It's an R2 zoning so I can build up to 3 detached units...

It's in Basically in Newport Beach for those familiar with the area

If I can figure out the money part it can be a really great investment because the rental income should easily pay for the mortgage...

What's the rental income?

Please post your numbers on this property.

 

[exclusives88]

Yes I plan on renting it out
It is a 9,000 sqft lot with steer down 752 sqft property

It's an R2 zoning so I can build up to 3 detached units...

It's in Basically in Newport Beach for those familiar with the area

If I can figure out the money part it can be a really great investment because the rental income should easily pay for the mortgage...

You have to factor in maintenance, capex, and vacancy. All of this will be a factor when calculating cash flow. Have you checked out biggerpockets.com?

 

[kkompoti]

Yes I plan on renting it out
It is a 9,000 sqft lot with steer down 752 sqft property

It's an R2 zoning so I can build up to 3 detached units...

It's in Basically in Newport Beach for those familiar with the area

If I can figure out the money part it can be a really great investment because the rental income should easily pay for the mortgage...

maybe you should start with something smaller than that house..find a good deal on a dublex, start fixing it and then rent it out.
then repeat
then repeat again,
and maybe down the way you will have enough money gathered to put a down payment for this house..

also check biggerpockets as suggested above.

don't do such a big financial move if you do not have previous experience with house buying and renting....

there is a member here that owns a golf course.....
buying a golf course is a really big investment and with the right management it can create a substancial cash flow...
he did not buy the golf course as his first ever investment.
he hustled his way through other properties and investments first.
and now he has the money to spent on safaris .....

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Ikke]

Maybe talk to some mortgage providers or brokers?

I know someone who earns about twice what you earn and his maximum available mortgage was less than the 800k you need. Things may be a bit better now the interest rate is even lower. But with an income heavily depending on performance and other variables i doubt your variable sales income is a great basis to base your mortgage application on.

 

[arcola]

What's the rental income?

Please post your numbers on this property.

You mean like of the units I would build? I'll try to find out by comparable properties....

You have to factor in maintenance, capex, and vacancy. All of this will be a factor when calculating cash flow. Have you checked out biggerpockets.com?

Thanks I just opened it up in a tab and will check it our

maybe you should start with something smaller than that house..find a good deal on a dublex, start fixing it and then rent it out.
then repeat
then repeat again,
and maybe down the way you will have enough money gathered to put a down payment for this house..

also check biggerpockets as suggested above.

don't do such a big financial move if you do not have previous experience with house buying and renting....

there is a member here that owns a golf course.....
buying a golf course is a really big investment and with the right management it can create a substancial cash flow...
he did not buy the golf course as his first ever investment.
he hustled his way through other properties and investments first.
and now he has the money to spent on safaris .....

The thing is this area is really really hot now and development gentrification is moving closer and closer to the property I want to buy.

My boss is actually the person who's pushing me to buy. Because he has bought a couple properties and value has doubled or tripled.

I'm making around gross 4-6k a month in commission, but in April I got my companies products in to one of the top 3 retailers in the world, and now I'm making about double that as commission rises..

I really want to put my extra cash it to something big...And my boss who is an expert is pushing me to do..

I just don't know what the options are to decrease the down payment to something I can afford....or what techniques are available to first time buyers to get more money to make the down.....to I need to just save for it???

 

[jon.a]

I really want to put my extra cash it to something big...And my boss who is an expert is pushing me to do..

1. Why isn't he doing it for himself?
2. Why isn't he showing you how to do it?

This is a really dumb idea. Lucky for you this property will require $200K down that you don't have so just move on.

Let's see if @JScott @SteveO @biophase @JustAskBenWhy are willing to jump in and explain why.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[arcola]

1. Why isn't he doing it for himself?
2. Why isn't he showing you how to do it?

This is a really dumb idea. Lucky for you this property will require $200K down that you don't have so just move on.

Let's see if @JScott @SteveO @JustAskBenWhy are willing to jump in and explain why.

He is doing it himself as I mentioned. He is showing me, and actually offered to help (I'm not sure to what degree) once I get the process started.

Why would it be 200k down? Even if it was 20% down it would be 160k no? Isn't the percent down much lower for first time buyer?

 

[jon.a]

He is doing it himself as I mentioned. He is showing me, and actually offered to help (I'm not sure to what degree) once I get the process started.

Why would it be 200k down? Even if it was 20% down it would be 160k no? Isn't the percent down much lower for first time buyer?

Is it a vacant lot or a house?
What kind of house?

 

[biophase]

You mean like of the units I would build? I'll try to find out by comparable properties....

You just posted that it's a really good investment and that the rents will cover the mortgage.

So I'm just asking you how you can up with that statement? Where is your math to support your statement?

This is already a really bad idea. You don't have a clue and you want to purchase a property and build on it?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[arcola]

Is it a vacant lot or a house?
What kind of house?

It is a lot with a small property on it

 

[arcola]

You just posted that it's a really good investment and that the rents will cover the mortgage.

So I'm just asking you how you can up with that statement? Where is your math to support your statement?

This is already a really bad idea. You don't have a clue and you want to purchase a property and build on it?

If I built 1,200 sqft units they would rent anywhere between 1,800 to 2,500 per month. Market value for each unit would be approx 450-500k.

It can easily be worth around $2mil after I build and can realistically generate $6k per month in rental income

My father is general contractor who builds houses like this and i would get a really great deal on the building as he offered to do a cost plus 10% - Most contractors have 30%-50% profit

 

[MattCour]

If I built 1,200 sqft units they would rent anywhere between 1,800 to 2,500 per month. Market value for each unit would be approx 450-500k.

It can easily be worth around $2mil after I build and can realistically generate $6k per month in rental income

My father is general contractor who builds houses like this and i would get a really great deal on the building as he offered to do a cost plus 10% - Most contractors have 30%-50% profit

Partner with your dad on the deal. He puts up most of the money, you do all the leg work and split the profits fairly after the project is complete.

Sounds like you need to do a lot more homework before even considering this.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[EvanOkanagan]

Hi all

There is a property near my house - in Southern California a Mile or two from the beach - that I know is a good investment property.

It's about $800k for 9,000 sqft lot..

How do I get enough money to actually get a down payment down on this house? Anyone have advice? I have 10k in savings, am 24 and have never bought or financed anything like this before. Even my car I bought I cash.

As of recently I make about 4-6k a month in sales sometimes more.

I'm starting from ground zero - anyone have advice?

No offense, but you bring nothing to the table on this deal. Your value is almost zero.

- No Real Estate experience.
- Little to no capability to finance (I'm a Realtor and have been in sales and experienced firsthand)
- No capital (your 10k may just cover closing costs)

If you're to bring this to other investors, the only value that you can bring is that you found the deal. And in that case, you have other options that don't involve you being the purchaser (like assigning the purchase contract to make a finders fee). Otherwise, why do they need you in this transaction?

 

[kkompoti]

The thing is this area is really really hot now and development gentrification is moving closer and closer to the property I want to buy.

My boss is actually the person who's pushing me to buy. Because he has bought a couple properties and value has doubled or tripled.

I'm making around gross 4-6k a month in commission, but in April I got my companies products in to one of the top 3 retailers in the world, and now I'm making about double that as commission rises..

I really want to put my extra cash it to something big...And my boss who is an expert is pushing me to do..

I just don't know what the options are to decrease the down payment to something I can afford....or what techniques are available to first time buyers to get more money to make the down.....to I need to just save for it???

start small, grow and learn as you go. real estate is wealth 101, you can do it!
patience is a virtue. and patience in making life changing decissions is needed.
plan carefully each step you make.
imagine the high risk you will be taking. high risk needs perfect planning
why don't you take your 10k put them as a downpayment for a condo and start small?
buying a lot, building several houses on it, taking all the licences for it, having to deal with the contractor(father mentling in your business idea is not so good in my opinion) and finding people to live in the houses takes a lot of time and a lot of money.
have you made an EXACT plan of expenses?
have you figured everything out? because after the downpayment, if something happens while you are building and you need an extra 30k to put in the project, where are you going to find that money?

real estate is king in making money but it can also be a king in losing money also.
also there must be a reason your boss is trying so hard to make you invest. secret agenda?

if the area is the reason you want to invest, is there a smaller lot for you to buy?

imagine facebook: started small from one campus, then second , then the world , you get the picture i think.

 

[biophase]

If I built 1,200 sqft units they would rent anywhere between 1,800 to 2,500 per month. Market value for each unit would be approx 450-500k.

It can easily be worth around $2mil after I build and can realistically generate $6k per month in rental income

My father is general contractor who builds houses like this and i would get a really great deal on the building as he offered to do a cost plus 10% - Most contractors have 30%-50% profit

What you just said above means nothing. Where are your numbers?

How much to build 3 1200sf units?
How did you calculate $6k month in rental income? What is this based on? What are your monthly expenses?

Did you even do any approximate calculations on this?

What was your interest rate on the $800k based on? What is the interest rate on the construction loan portion based on?

Seriously, this is so out of your league.

I mean I know absolutely nothing about this piece of land and I can come up with ballpark calculations.

3 x 1200sf houses @ $250/sf = $900k. Rehab 800sf property, $30k. Purchase house = $800k. $1.73 mil, Assuming an insanely cheap 100% loan at 3.5% interest only is $5045 in interest per month. Real estate taxes of $3k/mo? 2%? You are at $8045/mo.

Rent of $2500 x 3 + $1800 x 1 = $9300/mo.

I get $1255/mo cashflow with best case scenarios and no maintenance or vacancy. I have no idea how you even come close to $6k/mo cashflow based on even $10k/mo rent. Show me how you end up with $4k in monthly expenses after buying land and building 4 1200sf homes in LA.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Envision]

Edit: Exactly what bio said above.

0 experience.

Wants to spend a mil + build.

In California.

Asks a forum how to buy a house.

In short, I would highly advise against buying the property if you didnt get that vibe already. It seems that you have not posted any financials on the property and simply said the rent covers the mortgage so Im good. That is exactly how people get screwed.

Learn about real estate (go to a local REIA, read, Biggerpockets)
Learn ow to run the numbers.
Invest in a different market.
Learn from mentors.
Build a track record.

 

[Runum]

He is doing it himself as I mentioned. He is showing me, and actually offered to help (I'm not sure to what degree) once I get the process started.

Why would it be 200k down? Even if it was 20% down it would be 160k no? Isn't the percent down much lower for first time buyer?

Lending rules and requirements are usually different for owner occupied vs investment properties. If you qualify and live in it then you have no rental income.

You may get hard money but it's very risky and you will be on the hook if it doesn't work out.

REI is business. Business is driven by the numbers. @biophase has tried to get you to post your numbers that you have. If you do that then we can help you assess this better.

You have to know comp sales, cost of each unit, comp rents, taxes, insurance, maintenance, vacancy rates in your area, etc. You also have to have reserves for the vacancies. What is the timeline for building it out and getting it rented? Will you manage the property or will you hire a manager? What's the exit strategy? What are employment/business trends in your area?

Overall, this is quite a bite for a first timer. You will learn a lot in a short period of time.

Good luck.

 

[TonyStark]

Essentially, you're trying to climb a flight of stairs without any arms or legs.

My advice? MAKE MORE MONEY.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[arcola]

Partner with your dad on the deal. He puts up most of the money, you do all the leg work and split the profits fairly after the project is complete.

Sounds like you need to do a lot more homework before even considering this.

The thing is I really want to figure out a wa

What you just said above means nothing. Where are your numbers?

How much to build 3 1200sf units?
How did you calculate $6k month in rental income? What is this based on? What are your monthly expenses?

Did you even do any approximate calculations on this?

What was your interest rate on the $800k based on? What is the interest rate on the construction loan portion based on?

Seriously, this is so out of your league.

I mean I know absolutely nothing about this piece of land and I can come up with ballpark calculations.

3 x 1200sf houses @ $250/sf = $900k. Rehab 800sf property, $30k. Purchase house = $800k. $1.73 mil, Assuming an insanely cheap 100% loan at 3.5% interest only is $5045 in interest per month. Real estate taxes of $3k/mo? 2%? You are at $8045/mo.

Rent of $2500 x 3 + $1800 x 1 = $9300/mo.

I get $1255/mo cashflow with best case scenarios and no maintenance or vacancy. I have no idea how you even come close to $6k/mo cashflow based on even $10k/mo rent. Show me how you end up with $4k in monthly expenses after buying land and building 4 1200sf homes in LA.

So I did a little more research

Land cost: $800,000 (I'm probably going to offer $750,000)
Demolition of existing property: $2,000 to 4,000
Construction estimate cost of: 1,200 sqft $140,000 ea
Total cost of construction: $420,000

Total cost of project: $1,220,000

Market value for rental of 1,200 in on the block: $2,500 - $3,000 (if I rent out 3 units I would have a rental income of approx $6k)

How do I estimate loan costs? Is there a website or calculator you use?

Essentially, you're trying to climb a flight of stairs without any arms or legs.

My advice? MAKE MORE MONEY.

I am like I said I closed a pretty big account and the projection is im going to be making around $265,000 in commission pre tax this next year based on the plan the retailer laid out for us.

 

[arcola]

Lending rules and requirements are usually different for owner occupied vs investment properties. If you qualify and live in it then you have no rental income.

You may get hard money but it's very risky and you will be on the hook if it doesn't work out.

REI is business. Business is driven by the numbers. @biophase has tried to get you to post your numbers that you have. If you do that then we can help you assess this better.

You have to know comp sales, cost of each unit, comp rents, taxes, insurance, maintenance, vacancy rates in your area, etc. You also have to have reserves for the vacancies. What is the timeline for building it out and getting it rented? Will you manage the property or will you hire a manager? What's the exit strategy? What are employment/business trends in your area?

Overall, this is quite a bite for a first timer. You will learn a lot in a short period of time.

Good luck.

Thanks
I actually wanted to hear what he has to say so I can see what I am missing.

I know it is risky but I know I can make it happen I am a very driven and person. I am not going to pull the trigger until I do all my research first of course but I need to start somewhere.

 

[arcola]

What you just said above means nothing. Where are your numbers?

How much to build 3 1200sf units?
How did you calculate $6k month in rental income? What is this based on? What are your monthly expenses?

Did you even do any approximate calculations on this?

What was your interest rate on the $800k based on? What is the interest rate on the construction loan portion based on?

Seriously, this is so out of your league.

I mean I know absolutely nothing about this piece of land and I can come up with ballpark calculations.

3 x 1200sf houses @ $250/sf = $900k. Rehab 800sf property, $30k. Purchase house = $800k. $1.73 mil, Assuming an insanely cheap 100% loan at 3.5% interest only is $5045 in interest per month. Real estate taxes of $3k/mo? 2%? You are at $8045/mo.

Rent of $2500 x 3 + $1800 x 1 = $9300/mo.

I get $1255/mo cashflow with best case scenarios and no maintenance or vacancy. I have no idea how you even come close to $6k/mo cashflow based on even $10k/mo rent. Show me how you end up with $4k in monthly expenses after buying land and building 4 1200sf homes in LA.

When you say "insanely cheap 100% loan at 3.5% interest only is $5045 in interest per month" you are saying the mortgage payment would be 5045 a month correct? Why do you call it interest not mortgage? Was that a typo or is there something I do not understand
The mortgage is the principal and interest correct?


Also why is the tax so high in your calculate usually the tax is approx 2-3k annually not monthly

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[MMatt]

What seems great on paper may not always work out so well in reality. I would start with a much smaller investment to get your feet wet in real estate.

 

[biophase]

Land cost: $800,000 (I'm probably going to offer $750,000)
Demolition of existing property: $2,000 to 4,000
Construction estimate cost of: 1,200 sqft $140,000 ea
Total cost of construction: $420,000

Total cost of project: $1,220,000

Market value for rental of 1,200 in on the block: $2,500 - $3,000 (if I rent out 3 units I would have a rental income of approx $6k)

How do I estimate loan costs? Is there a website or calculator you use?

F*cking seriously?? You didn't even bother to google mortgage calculator. I don't see any hustle going on.

When you say "insanely cheap 100% loan at 3.5% interest only is $5045 in interest per month" you are saying the mortgage payment would be 5045 a month correct? Why do you call it interest not mortgage? Was that a typo or is there something I do not understand
The mortgage is the principal and interest correct?

Also why is the tax so high in your calculate usually the tax is approx 2-3k annually not monthly

Look dude, I'm trying to help you out as much as I can, but your questions here are telling me that you don't even know how to google stuff.

I was giving you the benefit of the doubt, but I'm going to keep playing here, because I like running numbers and showing you how far off you are.

First, where did you get construction costs of $116/sf? Please show me the research, a link, some proof? Are you building a ghetto unit? Yea, you said your dad is a contractor, is that the quote he gave you?

Second, I see that your market rent went from $1800 to $3000/mo since the last post. Ok, I'll accept your $9000/mo gross income.

Third, I'm going to accept your $1.2m cost, assuming you have no money and get an unlikely 3.5% rate, your mortgage payment will $5400/mo. I'm even going to ignore costs of PMI here.

Fourth, real estate taxes are based on the value of your property. Maybe 2% is too high, so let's assume 1% which may be low (based on your $2m valuation you said), which would be $20,000/yr, or $1666/mo.

So... we have $7066 in just mortgage and taxes, at your super low rate of 3.5%, with a 100% loan, at a building cost of $116/sf.

Even with every single assumption being skewed towards your direction AND you have the best tenants and never have to do a repair, you end up with less than $2000/mo cashflow. Please tell me again how you got $6k/mo?

 

[Mikkel]

I think the overwhelming suggestion here is to start out small @arcola

Are you giving up a great property, potentially? Yea, most defiantly could be. However, you are placing yourself at an incredible risk for barely knowing anything about Real Estate marketing.

You may have a mentor, but where is he going to be when things fall through? He won't be with you, I can tell you that. He's not the one investing in the property, you are, with your money.

You need to play within your limits. Going Fastlane does not mean going from the slow lane and jump 3 lanes of traffic just to get to the furthers most left lane.

There will be other killer opportunities, but the difference will be that you have experience and extra capital.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[arcola]

When you say "insanely cheap 100% loan at 3.5% interest only is $5045 in interest per month" you are saying the mortgage payment would be 5045 a month correct? Why do you call it interest not mortgage? Was that a typo or is there something I do not understand
The mortgage is the principal and interest correct?

F*cking seriously?? You didn't even bother to google mortgage calculator. I don't see any hustle going on.



Look dude, I'm trying to help you out as much as I can, but your questions here are telling me that you don't even know how to google stuff.

I was giving you the benefit of the doubt, but I'm going to keep playing here, because I like running numbers and showing you how far off you are.

First, where did you get construction costs of $116/sf? Please show me the research, a link, some proof? Are you building a ghetto unit? Yea, you said your dad is a contractor, is that the quote he gave you?

Second, I see that your market rent went from $1800 to $3000/mo since the last post. Ok, I'll accept your $9000/mo gross income.

Third, I'm going to accept your $1.2m cost, assuming you have no money and get an unlikely 3.5% rate, your mortgage payment will $5400/mo. I'm even going to ignore costs of PMI here.

Fourth, real estate taxes are based on the value of your property. Maybe 2% is too high, so let's assume 1% which may be low (based on your $2m valuation you said), which would be $20,000/yr, or $1666/mo.

So... we have $7066 in just mortgage and taxes, at your super low rate of 3.5%, with a 100% loan, at a building cost of $116/sf.

Even with every single assumption being skewed towards your direction AND you have the best tenants and never have to do a repair, you end up with less than $2000/mo cashflow. Please tell me again how you got $6k/mo?

Typo I mean 9k in rental income and I was talking gross. I just occurred to me you thought I meant net rental income.

The quote is from my dad it wouldn't be ghetto.

Even if I broke even on cash flow, and the tenets are paying the mortgage for me, wouldn't that scenario be a good one?

My income is rising and I could help pay the assets down over time fast - I noticed that at a 3.5% interest rate if I paid 7,184 or double the monthly, I would pay it down in just about 135 months and pay only 168,742 in interest opposed to 493,248 over 360 months...

I am probably going to make around 15k a month after tax next year and think this is doable...

I'm not trying to build a real estate investment business...I just want to take the opportunity in the market right now and actually own something instead of renting.


Thanks for the help...your post helped me move forward.

I do know how to google and found some good spread sheets to work off of since this morning.

 

[Envision]

Typo I mean 9k in rental income and I was talking gross. I just occurred to me thought I meant net rental income.

The quote is from my dad it wouldn't be ghetto.

Even if I broke even on cash flow, and the tenets are paying the mortgage for me, wouldn't that scenario be a good one?

My income is rising and I could help pay the assets down over time fast - I noticed that at a 3.5% interest rate if I paid 7,184 or double the monthly, I would pay it down in just about 135 months and pay only 168,742 in interested opposed to 493,248 thousand over 360 months...

I am probably going to make around 15k a month after tax next year and think this is doable...

I'm not trying to build a real estate investment business...I just want to take the opportunity in the market right now and actually own something instead of renting.


Thanks for the help...your post helped me move forward.

I do know how to google and found some good spread sheets to work off of since this morning.

What happens when a water heater in one of the units goes out? A tenant leaves and a unit is vacant for 3 months? After a deeper look one unit has black mold throughout it?

You end up going negative and now your living with a problem. There's too much money/risk involved to simply just break even..